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Global recovery robust, but jobs lagging
NEW YORK, Feb 4 (Reuters) - The huge U.S. services sector surged to its best level in seven years in January and the European economic recovery is firmly underway, but jobs remain elusive for the millions out of work, surveys showed on Wednesday. Surveys of the key services sector showed business activity is powering ahead in the U.S., the eurozone and Britain, but companies are hesitant about taking on more staff or expanding capacity. The Institute for Supply Management said its index of U.S. non-manufacturing activity rose to 65.7 last month from 58.0 in December, a record high since the series began in 1997. It was far above economists' forecasts for a 65.0. But a key measure of employment slipped, as firms remain reluctant to add to payrolls. "The service sectors of the economy are booming," said Steven Wood of Insight Economics. "However, companies still appear to be keeping a tight rein on inventory building and hiring, which suggests that businesses are still concerned about the sustainability of the economic expansion," he said. Much hangs on whether the recent burst in economic activity translates into new hiring. The risk is, without a stronger labor market, consumer spending will falter. It was a key risk noted by Chicago Federal Reserve President Michael Moskow on Tuesday, who said the big question for the economy is whether the recent surge in demand is sustained, or falters like the spurt in activity in 2002. That will influence the timing of when the Fed puts through an increase in official interest rates. Economists are split between a rate rise this summer, or not till 2005. BUSINESS CAUTION The U.S. economy created only 1,000 new jobs in December, and hopes are high for a solid increase of 150,000 payrolls in January. But similar hopes have been dashed in recent months by anemic job creation. The payrolls report is due on Feb. 6. "The lack of a big surge in the January services employment suggests that January payrolls may not be the 'break-out' month that many expect," cautioned HSBC chief economist Ian Morris. Parallel surveys of services in Europe and the UK showed a similar pattern of growth without jobs, ahead of Bank of England and European Central Bank interest rate decisions on Thursday and a weekend meeting of finance ministers from the Group of Seven industrialised countries. The Reuters Eurozone Business Activity Index rose to 57.3 in January, well above the 50 mark which separates growth from contraction, from 56.6 in December. Its British equivalent, the CIPS/Reuters business activity index, rose to 59.8, its highest level since June 1997, from 58.5. Similar surveys of manufacturing industry published on Monday also showed surging expansion in the world's major economies, but with euro zone job creation a problem because of the strength of the single currency. "This is a very positive picture," said Chris Williamson, chief economist at NTC Research, which compiles the European surveys, speaking about the euro zone services findings. "But it needs to be qualified with the fact that firms are showing a reluctance to expand capacity in line with growth of new business. We need to watch carefully how that trend will continue over coming months, especially in relation to employment." While markets are sure the European Central Bank will keep its key rate on hold at Thursday's meeting, the British survey confirmed traders in their belief that the Bank of England will order its second 25 basis point hike in three months. "Clearly, as far as tomorrow's rate decision goes, we're going to see a quarter point hike. Thereafter the Bank will be looking more closely at the strength of the economy and will probably be pencilling in more rate rises to come," said economist Peter Dixon at Commerzbank Securities. A global indicator based on national surveys of services companies, compiled by JP Morgan, rose to 60.5 in January from 59.7 in December, reflecting faster growth in most major economies.
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